World Trade: Taking a Turn for the Worse

I had lunch last week with a colleague who works at a services firm in the Spend Management sector with significant operations in the Far East. This is a provider that had ramped up operations in China during the country's boom export years -- both to serve Western companies and to meet the rising demand of domestic Chinese companies looking to expand their sourcing efforts. When the state of the global economy was on both of our minds, the Chinese economy, specifically, came up before the end of conversation. And both of us are hearing and seeing similar things -- a complete drying up of business in the region.

Why is China front and center in the decline of global buying activity? I'd argue that it's because the manufacturing sector appears to be the hardest hit by the recession so far. In fact, I spoke to someone else last week who was visiting a global manufacturer -- a household name -- who mentioned that business began to drop off the cliff in November with volume levels declining by 50%. And this is only one example that appears to be echoing an all-too-familiar refrain that manufacturing business is simply drying up.

A recent Wall Street Journal article (registration and subscription required) shares some statistics which would appear to back up the premise that the global manufacturing trade is rapidly contracting. The story notes that "trade among nations is declining sharply around the world, an unusual development even in a recession -- and one that makes it more difficult for countries to pull out of their economic dive." Consider the case of just the US where combined exports and imports "dropped 18% in the four months from July to November, to $326 billion from nearly $398 billion … Two-thirds of the drop was in imports, which helps explain why so many countries dependent on trade with the U.S. are suffering."

This means that workers worldwide are going to have some serious time on their hands. Consider that a spokesman for The General Federation of Belgian Workers, the Belgian socialist workers union, noted in the article that "We're all preparing for huge layoffs in the coming months." And this in a country where layoffs are considered more egregious than capital crime (based on my own experience when FreeMarkets closed an office in the region). I doubt, however, that a few Chimays on the house (or the trade union) will have much of an effect on the declining job market -- in Belgium and far beyond. The world trade hangover is going to linger for some time. Let's just hope that President Obama does not use tough times as an excuse to make trade more difficult and/or costly in the spirit of protecting US workers -- a concept that we all know is a huge fallacy.